Bloomberg News

LNG-Powered Shale Drilling Reduces Fuel Costs, Encana Says

March 22, 2012

Using liquefied natural gas to power drilling rigs instead of diesel can reduce fuel costs by almost half and cut greenhouse-gas emissions, according to an Encana Corp. (ECA) pilot project.

Encana, Canada’s largest natural-gas producer, reduced fuel costs 47 percent, or $830,000, compared with diesel use, at a shale-gas drilling site in the Haynesville formation which spans the border of Texas and Louisiana, David Haugen, who heads Encana’s market development for gas strategic planning, said in an interview.

The savings were based on consumption of almost half a million gallons of fuel and average prices of diesel of $3.28 a gallon and $1.11 a gallon for LNG over a period of about 160 days. The company plans to use LNG at more of its operations, said Haugen.

“We’d love to adopt LNG across our operations,” he said. “The potential for savings is significant. One of the constraints is the makers of drilling rigs” which largely build diesel-powered systems.

Gas producers in the U.S. and Canada are struggling to remain profitable with record low prices for the fuel and are looking for ways to increase demand. Encana, based in Calgary, is converting its trucks to gas and has a stake in a project with Apache Corp. (APA) and EOG Resources Inc. (EOG) to export LNG from northern British Columbia to Asia.

Less Pollution

Gas emits 20 percent to 30 percent less carbon dioxide than oil-based fuels and has a fraction of the emissions of nitrogen oxides, sulfur oxides and particulate matter, which are linked to respiratory health problems such as asthma, according to the U.S. Environmental Protection Agency.

“Natural gas integrates better with renewables,” David Layzell, executive director of the Institute for Sustainable Energy, Environment and Economy at the University of Calgary, said in a presentation today. “We’re about to go through a major energy transformation across the world.”

North American gas prices are the lowest in the world as demand stagnates and supplies increase with the use of hydraulic fracturing. Gas for April delivery gained 2.5 cents to settle at $2.36 per million British thermal units on the New York Mercantile Exchange.

The futures declined to $2.204 per million Btu on March 13, the lowest intraday price since Feb. 15, 2002.

Encana announced last month that it would scale back investment and cut output to reduce North American supplies by as much as 600 million cubic feet a day in a bid to boost prices for the heating and power-plant fuel.

Encana fell 2.5 percent to C$20.29 at 11:42 a.m. in Toronto.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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